Kindle’s Place in Amazon’s Tablet-based Ad Business

by Anthony John Agnello | March 8, 2012 3:17 pm

The second screen is proving a potent portal for business. A report released by Nielsen on Monday showed that mobile advertising on tablets is leading to an impressive number of purchases on other devices. Among owners of tablets like Apple’s (NASDAQ:AAPL[1]) iPad in the U.S., U.K., Germany, and Italy, 29% made purchases on a PC after seeing ads for those goods on their tablet.

Additionally, 17% of those consumers actually went to bricks-and-mortar stores to buy goods they saw in tablet ads. Even when readers aren’t purchasing, the ads are creating interest, with 20% searching for additional information on a product after seeing an ad for it on their tablet.

The tablet advertisements are working, which means that advertisers are going to spend on the platform in ever increasing numbers.

Trying to make the most of the platform

Considering Apple maintains a 62% share of the global tablet market, you’d think that this Nielsen data would be most interesting to that company’s foundering iAd platform. And what about that rising star of the tablet market, Amazon (NASDAQ:AMZN[2])? The company’s Kindle Fire tablet seized a 14% share of the global tablet market in 2011 after just a month and a half on store shelves. IHS iSuppli estimated that Amazon sold nearly 4 million Kindle Fires last year. That’s a whole lot of advertising portals. Is Amazon carving out a place for itself in the mobile advertising space in the same way it has in the tablet market?

It is certainly trying. Amazon’s mobile advertising initiative kicked off before the Kindle Fire tablet hit the market, of course. Early in 2011, Amazon released a cheap version of its Kindle e-reader whose lower cost was subsidized by advertising, though only in the U.S. The ad-supported Kindle became a quick seller. By September, the Kindles with “Special Offers” were the best-selling devices at Amazon and the Kindle Fire further established Amazon’s portables as advertising-rich platforms.

The iPad pace car

All told, though, Kindle doesn’t seem to be as effective an ad platform as Apple’s iPad. A February report at Business Insider broke down data from online marketing agency Rimm-Kaufmann Group and found that Kindle devices account for just under 3.5% of ad traffic on tablets, well ahead of competing Google (NASDAQ:GOOG[3]) Android tablets like Motorola’s (NYSE:MMI[4]) Xoom and Samsung’s (PINK:SSNLF[5]) Galaxy, but still crushed by Apple’s iPad, which accounted for more than 88% of tablet ad traffic.

On the other hand, it’s still early. The iPad is entering its third year as a mobile advertising platform whereas the Kindle is entering only its second. Provided Amazon can maintain Kindle sales momentum, the competitive landscape could look quite different by 2013.

Ultimately the Kindle is just one component of Amazon’s larger growth in advertising. The company’s annual revenue from advertising across all its businesses totaled just $1 billion for the very first time. That’s small beer compared to Google’s $38 billion annual ad pull, but as more and more consumers search for advertised goods directly through Amazon’s website and on its portable devices, that figure is going to grow and grow.

The Kindle isn’t the ad earner it could be, nor is Amazon’s total operation. One billion dollars today, quite a bit more tomorrow if the company’s ad presence keeps growing.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[6] and become a fan of InvestorPlace on Facebook.[7]